BDB India Private Limited

BDB India Private Limited

Impact of electric vehicles on the automotive ecosystem

India is poised to soar, higher than many fast-growing large economies over the next decade. At
the same time, automotive original equipment manufacturers (OEMs) and component
manufacturers in the country aspire to achieve global eminence.
The future of the auto OEM and auto component industry is being shaped by multiple trends,
policies and discontinuities.
The Indian automotive OEM industry is already in a strong position. Globally, it is at the forefront
of many segments—leading in two-wheelers, segment A cars, and tractors. The industry aspires to
nearly triple vehicle sales by 2026, from 26 mn to 76 mn vehicles in 2026, across segments. India
is renowned as a global hub for frugal and scalable engineering.
Busy automotive clusters across India drive the industry— especially the three major clusters of
Mumbai–Pune–Nasik–Aurangabad in the West, Chennai–Bangalore–Hosur in the South, and
Delhi–Gurgaon–Faridabad in the North,14 as well as upcoming areas like Sri City, Anantapur and
Sanand.
These could be definitive tailwinds for the Indian automotive components industry, which has
ambitions of its own by 2026—to double the contribution to manufacturing GDP with a four-fold
growth in size and a six-fold growth in exports.
The auto component industry’s turnover increased from ₹ 1.1 lakh cr (US$ 24 bn) in FY 2009, to ₹
3.5 lakh cr (US$ 51.2 bn) in FY 2018. While industry turnover has more than tripled (in Rupee
terms) in the past decade, India’s contribution to global turnover is approximately 3%.
Autonomous vehicles, connected vehicles, Electrification and Shared Mobility (ACES) are very
real, disruptive and technology-driven trends that could change the future of the mobility industry.
India already has more than 50 startups working on innovative ACES technologies across cars,
two-wheelers and commercial vehicles.
These technologies are gaining ground due to increasing customer acceptance, stricter emission
regulations, lower battery costs and more widely available charging infrastructure.
By 2030, various estimates expect that the share of EVs in global markets could be upwards of
30% of all new vehicle sales, edging into the market share of traditional vehicles. By that time,
shared mobility and connected vehicles could contribute US$ 1,575 bn to automotive revenues, a
critical chunk of overall revenues of US$ 6,600 bn.
A leading shared mobility company took more than eight years to complete its first 5 bn rides, and
then in just over one year, doubled the number of rides. In India, shared mobility providers saw a
four-fold rise in ride volumes between 2015 and 2016. With EVs likely to make these services
cheaper, the figures are only expected to increase.

Impact of Electric Vehicles on the Automotive Ecosystem

End Government
Automakers Dealers Suppliers
Customers Regulations
Automakers are The dealer business
realizing that surge Powertrain-related Customers prefer Governments may
model will undergo
is arriving sooner suppliers will need vehicles that are bank on electric
changes as electric
than expected to reinvent fun to drive and vehicles to meet
vehicle
paving the way for themselves to be packed with latest their climate
maintenance costs
new internal power relevant in the technology and change goals
are expected to be
centers and future features
lower than those of
external conventional cars
partnerships
BDB India Private Limited

Every component will feel the effect of these trends differently, and to varying degrees. For
example, electrification could over time slow down the demand for internal combustion engine
components, while fuelling the rise of electric motors, battery cells and battery systems.
The implications for conventional automobile manufacturers are going to be significant as they
will have to discard most of today’s technologies. Virtually all reusability between existing models
and new models will be gone and will lead to a complete disruption of the industry economics.
The influential divisions within car companies will lose power. They will refuse to transfer power
and money to the electric divisions. There are similar precedents: Control Data Corporation,
Burroughs and Kodak refused to adapt to the emerging changes and lost their way completely.

The automotive ecosystem, consisting of dealers and suppliers, will also be affected. Dealers will
have to face the challenge of selling both electric and conventional cars together and automakers
will have a tough time as the margins and future revenue from an electric car will be far lower
compared to a conventional car.
Electric cars by design will require less maintenance and it will have a direct impact on the
profitability of dealers and automakers. Traditionally, profits from servicing have sustained
automobile companies and the electric car revolution could affect them. Companies could lose
50% or more in profitability as the industry migrates towards electric-driven vehicles.
The major shift is going to be towards an electric / electronic one, and the focus will shift from
engine management, emission control, and fuel efficiency to batteries, drive motors, and other
aspects of technology. Electronics / electric companies will become the new power centers and
will drive innovations in future cars along with technology companies.
While EV penetration is going to be on an upward trajectory, it is important to note that the ICE
market is still going to grow—it could double from current size in 2026, based on projections from
the Automotive Mission Plan 2026, even after accounting for around 30% EV penetration.
However, increasing global EV penetration will pressure the prices of ICE components as
production capacity is left idle, re-purposed or shut down. This could lead to either the dumping
of ICE vehicle components in Indian markets or a shift of demand for ICE vehicle components to
India.
 BDB India Private Limited

Electric vehicles will be able to innovate faster

Compared to internal combustion engine vehicles, electric vehicles have a significant advantage -
battery technology developments are faster than those of the engine technology on gasoline-based
vehicles.
In addition, the trend of packing electronics in today’s automobiles shows that innovations in
electronics will outpace other innovations. The amount of electronics in an electric vehicle is high
compared to conventional vehicles. It offers opportunities for more innovations. The electric car of
the future will be a true computer on wheels and will change the character of the automobile.

Electric Vehicles penetration in India

Segment
Particular FY 2019 FY 2020 FY 2023

Total Sales 57,000 58,000 70,000

EV Sales 350 1200 10,000

EV Penetration (In%) 0.6% 2.1% 14.3%

Total Sales ~21 Mn ~ 19 Mn ~ 25 Mn

EV Sales 1,26,000 1,50,000 3,50,000

EV Penetration (In%) 0.6% 0.8% 1.4%

Total Sales 13,31,011 5,48,000 5,86,000

EV Sales 6,30,000 40,000 2,80,000

EV Penetration (In%) 47.3% 7.3% 47.8%

Total Sales 3.3 Mn 2.8 Mn 4.0 Mn

EV Sales 3600 14,000 1,55,000

EV Penetration (In%) 0.1% 0.5% 3.9%

Intra-city bus segment is ready as compared to others due to shorter trip length, route predictability
and ease of charging at bus depots. The Government is emphasizing more on usage of public
vehicles for sustainable transport
Given the head start of the e-rickshaw segment, a mild push by the Government could drive a nation-
wide adoption of 3Ws in India
Passenger vehicle fleet operators like Ola, Uber and regional players will be early adopter of EVs,
while retail/ private car owners will wait for better value preposition.
BDB India Private Limited

Impact of Electro mobility on the automotive supply chain

The transformation from ICE vehicles to EVs has significant implications for the existing
automotive industry supply chain. An EV is relatively simpler to build with only 20 moving parts
against ~2,000 in an ICE vehicle.

The growth of EVs will lead to profound changes across the automotive value chain, including
technology, manufacturing systems, ownership models, distribution and aftermarket support.
This would cause a significant decrease in addressable market for vehicle repairs/ service and
would require them to build new capabilities.

From the perspective of component suppliers, large automotive suppliers are likely to adapt to the
dramatic changes; however, small players could be hit the hardest from this disruption. The
existing suppliers will not only have to deal with the transition, but also face severe competition
from the new entrants in the industry such as technology companies and battery producers.

Industry experts in India believe that EVs could grow by 2030, especially for public buses,
motorcycles (under 125 cc), scooters, three-wheelers and light commercial vehicles, which are
likely to see at least 25% penetration.

This could result in some “rising star” components, such as batteries and battery materials, electric
motors, power electronics, the demand for which is certain to spike with EV penetration. Auto
component manufacturers could benefit from the opportunity to produce and supply some of
these components.

Traditional suppliers will move from supplying parts such as exhaust pipes and ICEs to perhaps
battery materials, electric motors, and regenerative braking systems. EVs will create opportunities
in durable and lightweight thermoplastics, higher demand for electricity, storage and many others.

The net impact on employment would perhaps be balanced out. In addition, EV battery charging
and swapping would create a large number of jobs throughout the country.
 BDB India Private Limited

Engine components can be broadly categorised into core engine components, fuel delivery system
and others. This segment accounts for 31% of the auto component market (by value) and includes
pistons, piston rings, engine valves, carburettors, crank shafts, sump connecting rods etc.
These critical components require a high level of precision and quality adherence. Accordingly,
there is a high level of coordination between component manufacturers and OEM.
The drive transmission and steering component segment accounts for around 19% of the auto
component market. This segment consists of products like gears, wheels, steering systems, axles
and clutches. Clutch discs, cover assemblies and kits components are the key sub-categories in the
clutch sub-segment.
The migration of ICE to EV powertrain will mean that OEs will no longer require engine parts and
drive transmission components or will have reduced demand for them. Component suppliers will
have to relook at their product offerings, R&D efforts for developing and supplying electric motors
(Permanent Magnet [PM] and induction motors), inverters, converters, rectifiers, Engine
Management Systems (EMS) (powertrain components).

Impact on major auto-components

Negative impact Neutral Positive impact

Engine parts Steering systems Electric motors

Clutch Seats Batteries

Radiators Brake lining Headlights Wiring harnesses

Inverters

Gears Leaf springs Microprocessors

Shock Absorbers Controllers

• Engine and transmission component manufacturers would witness large-scale

obsolescence of their products with the increase in share of EVs.
• Casting and forging suppliers, especially those dealing with aluminium, could branch out
into areas such as motor housings and light weighting the chassis.
In addition to this, suppliers may plan to change the mix of their portfolio with more
alignment towards suspension parts which will stay even in the EV world.
• Powertrain pump manufacturers that make water, fuel and oil pumps including many who
have already moved from mechanical to electric pumps (on account of the advent of
hybrids and some fuel efficiency measures) could have potential opportunity areas in
battery cooling systems, and motor cooling systems.
• Manufacturers of precision powertrain components such as turbochargers (including the
turbines), fuel injection equipment (including nozzles, high-pressure pipes) have expertise
in precision manufacturing such as sub-micron machining.
In addition, they also have been making electronic control systems for fuel injection. They
can leverage their manufacturing and electronic systems expertise in electric drive
modules.
BDB India Private Limited

• Electrical component makers including those supplying wire harnesses and switches could
see a huge opportunity as the length of the wire harness in an EV is three times as much as
in a conventional ICE vehicle.
This, coupled with the fact that wire harness manufacturing is relatively labour-intensive,
could certainly hold tremendous opportunities for players in India.
• Cooling system manufacturers engaged in the manufacture of heat exchangers/radiators
could see an upside in battery/motor cooling areas.
Thermal management of battery and motor/electronics is very crucial in EVs as the
performance of the battery is totally dependent on the operating temperature.
• After-treatment system manufacturers, the majority of whom cater to canning part of the
after-treatment value chain, could use competencies in sheet metal fabrication,
electroplating and mechatronics in EVs as well.
The ability to apply a thin layer of metal can be used in EV wirings as they are a little
different from conventional vehicles.
• Manufacturers of fuel tanks, most of which have become plastic, could use their
competencies in heat, impact-resistant plastics for developing tanks for housing cooling
fluid in the battery cooling circuit, especially since they have competencies to make tanks
in various shapes for packaging in the limited space available.
• HVAC system manufacturers would see a shift in the need for thermal management in a
vehicle. The conventional heaters may need to be upgraded especially since the large heat
source in the form of an IC engine would not be available.
This will require separate electric heaters. The AC functionality is expected to remain
same.
Likely scenario in case significant of EV adoption in India
1. OEMs likely to lose some control in the EV value chain:
EVs are less complex to manufacture as compared to ICE vehicles with far fewer moving
components and the battery constituting more than 50% of the value of vehicle. This
would result in a dilution of control for the OEMs.
2. Significant changes in component manufacturers’ portfolios:
Existing powertrain-related suppliers would lose markets, making them significantly
smaller in an all-EV scenario. Whereas new opportunities lie in EV parts such as battery,
motors, controllers and microprocessors.
3. Lack of battery manufacturing capabilities in the country to lead to more partnerships and
collaborations:
As EVs gain traction in India, OEMs need to look to secure access to Li-ion reserves and
R&D capabilities to manufacture batteries indigenously. Hence, a number of foreign
collaborations, partnerships and consortiums between OEMs, battery producers and
suppliers could be expected.
 BDB India Private Limited

Key implications to current automotive players:

1. OEMs need to reinvent their business to focus on building relationships with battery and
electric/electronics component suppliers and also explore opportunities for in-house
battery manufacturing.
2. Given the ease of manufacturing of EVs combined with a larger trend of increased vehicle
sharing, there is a risk of vehicles getting commoditized and thus an increased focus on
OEM brand differentiation would be required.
3. Component manufacturers need to re-align their product portfolios as the industry
transitions to EVs. Given EVs are a cross-sector play, new sources of value creation will
need to be discovered and the pecking order of the industry participants will get redrawn

Impact on automotive dealers

The average ratio of car sales to car service in India is 1:15, which means that for every 1 car sold,
15 cars are serviced. Aftersales and servicing is crucial for dealer profitability as they bring
footfalls and significant revenues.
However, the powertrain migration from ICE to electric will have a significant impact on the
serviceability of the platforms as there will be fewer moving parts.
The country’s top two OEMs, Maruti Suzuki and Hyundai Motor India, together service over
66,000 cars daily. There will be significant downsizing of technicians in the coming years as the
viability of dealerships will be questioned
BDB India Private Limited

Automotive players in India could expand their play in these times of disruption through the
following focus areas:
Change the mix in the ecosystem: The entry of EVs in the automotive landscape could change the
balance of the industry. OEMs and suppliers may need to start competing for new sources of value
addition to maintain their profit pools.
Many unconventional partnerships are emerging, such as the foray of global tier-1 auto suppliers
into the EV battery business via joint ventures with cell makers. Many EV startups have also
mushroomed in the recent past, inspired to replicate the success of a few players.
OEMs and component players in India need to figure out opportunities to protect and expand
their market share. There are early signs of resilience across segments—a leading two-wheeler
manufacturer has invested in a start-up to manufacture affordable electric two-wheelers. A
hardware startup has developed a premium scooter that uses an in-house lithium-ion battery and
can charge to 80% in under an hour. Similar innovations are needed across the EV ecosystem.
As an example, in China, incumbents and new attackers are expanding their play across the EV
supply chain—from developing batteries to offering services like charging. Interestingly, the
established players and EV specialists are trying to develop a presence across most parts of the
value chain, while emerging players are selective about their role—venturing into areas like design
and engineering, marketing and sales, distribution and charging services.
Build new competencies: As EVs take off in India, most automotive players may need greater
access to new technical talent not only in software and power electronics but also across
commercial and supply chain functions.
In addition, there could be a need to build new technology assets like testing facilities, rapid
prototyping, and product/ UI design capabilities. Automotive players in India need to assess such
needs and find ways to build EV competencies in their existing talent pool or acquire from outside.
Improve performance: This could include reducing battery cost and charging time, and increasing
EV driving range. Globally, battery prices are dropping due to technology and scale
improvements—this could affect battery prices in India as well.
Additionally, automotive players in India could explore ways to make charging as convenient as
refuelling. Battery swapping could be a solution, especially for public transport vehicles like buses
and three-wheelers, where product standardization is easier (subject to charging time, ease of
swapping, scheduling and routing of vehicles).
Build scale: Battery and EV component manufacturers in India need to figure out strategies to
develop scale and to make local manufacturing feasible. Leading battery manufacturers have a
different point of view on scale.
According to one estimate, approximately 3 GWh of cell production facility is needed to gain
economies of scale in battery cell production. Another global battery manufacturer puts the figure
at a minimum of 10 GWh. Going with the conservative estimate of 10 GWh, approximately
200,000 to 500,000 four wheelers (10-20 kWh) and 1.5 million to 2 million two wheelers (3 kWh)
sold in a year need to be electric to create the required scale. This seems achievable even excluding
the replacement battery demand.
 BDB India Private Limited

The road ahead for auto component manufacturers

There is no denying that e-mobility is here and now, and that its growth could impact auto
component manufacturers in India in a big way. It is imperative for auto component
manufacturers to start preparing for the ensuing disruption. They could consider a three step
roadmap to smoothly transition into the EV way:
Acknowledge and move fast: While three-wheelers and buses are expected to be electrified in the
first wave, the second wave will see scooters, taxis and small and light commercial vehicles going
the EV way. This will eventually be followed by private cars and other vehicle segments.
As a result, there could be a gradual transition away from ICE vehicles across various segments
giving auto component suppliers some time to transition to a different product mix. However, as
the supply–demand balance shifts, auto component manufacturers need to brace for significantly
lean operations in ICE vehicle components.
Re-invent the business, including collaborating with OEMs/other manufacturers across the global
industry: It might be a big challenge for an individual player to take control of the EV market.
Auto component manufacturers could benefit by collaborating among themselves and with OEMs
to chart out their EV path, and accordingly define individual strategies.
It might be timely to get started on this, as the prudent players have already started forming
partnerships. As automotive players in India seek the best business model, it is important to
remember that models that have worked in the past and in other geographies may not necessarily
be the best solution for markets in India.
Build the right assets and skills to serve the needs of the new age industry: Auto component
manufacturers could need access to new assets (e.g., new prototyping and testing facilities) and
skills (across diverse functions like engineering, sourcing, marketing, investments/M&A) in order
to thrive in the new ecosystem. It is imperative that they think about it and chart out detailed
plans to build or acquire such assets and skills.
BDB India Private Limited

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